August 4, 2021

How to keep people above water on loans

Key strategies implemented in dealerships’ finance-and-insurance offices can help prevent negative equity for customers.

For Justin Gasman, financial services director at McCaddon Cadillac-Buick-GMC in Boulder, Colo., his plan of action to help customers maintain the value of their vehicles and keep them above water on loans involves education, short-term loans and cash.

He told Automotive News that he teaches customers the benefits of a service contract, which can cover damage that might happen to a vehicle during ownership, to help maintain value, he said.

Gasman also pushes for shorter-term loans to get the customer better rates.

And F&I managers should create customized options that match each individual’s needs.

“There’s no magic, just options available,” he said.

A simple way to keep customers out of negative equity is to ask for cash, Gasman said. Putting cash down gets people a lower total cost and a lower monthly rate.

“Don’t be afraid to ask for the money,” he said.

Dina Wilson, general manager of Timbrook Kia in Cumberland, Md., agreed that “cash is king.” She said that F&I people are scared to ask for it, but cash down is beneficial to all parties — especially because that’s where dealers make their money.

Wilson focuses on treating every customer individually by creating customizable product plans.

“It’s like the Forrest Gump saying, customers are like a box of chocolates — you never know what you’re going to get,” she said.

She said she offers customers the best products that will protect them during their time of ownership and at the time of trade-in.

Tony Dupaquier, director of the Austin, Texas-based retail sales and finance training institute The Academy, agreed that shorter terms and cash down reduces negative equity. But F&I products is where consumers are going to see protection pay off.

Reconditioning costs of damaged windshields, missing key fobs, dings and environmental erosion all play a role in the value of a vehicle. If those damages are covered by a service contract, the value of the vehicle can be maintained, he said.

Cost of protection in the F&I office is cheaper than the replacement or reconditioning of damaged elements of the vehicle that are not covered.

Also, Dupaquier said the cost of unused service contracts can be given back to the customer as a prorated refund that can be used toward the down payment on their next vehicle.

“When a dealership can buy a vehicle that does not need a tremendous amount of reconditioning work, they pay extra for it,” he said.

Dupaquier said he is seeing the value in quick-turnaround vehicles at auctions across the country. In some cases, the car could be worth an extra $500 or $1,000.

“When dealerships have the ability to buy front line-ready machinery, they are paying for it,” he said. “It’s invaluable.”

Gasman said products purchased through the F&I office can keep consumers on the right side of loans by covering incidents before they even happen.

“People want to be protected,” he said.